CARACAS (Reuters) - Venezuelan state oil firm PDVSA [PDVSA.UL] has signed a deal with little-known U.S. energy firm Erepla, partly owned by a prominent Florida Republican, to help increase the socialist-run country’s plummeting crude oil output, the company said.

FILE PHOTO: The corporate logo of the Venezuelan state-owned oil company PDVSA is seen at a gas station in Caracas, Venezuela November 2, 2018. REUTERS/Marco Bello/File Photo

Erepla Services LLC, with an undisclosed stake held by Republican Harry Sargeant III and which Delaware state records show was only registered in November, said it plans to invest up to $500 million to increase production at three Venezuelan oil fields in exchange for a portion of the crude produced.

Sargeant and Petróleos de Venezuela, S.A., known as PDVSA have clashed in the past. Between 2006 and 2008, PDVSA was awarded $52 million after a company partly owned by Sargeant was accused of not paying for several crude shipments in 2002 and 2003, court records show.

The new arrangement faces significant hurdles, including obtaining an exemption from Trump administration sanctions that block U.S. companies from providing financing to the government of President Nicolas Maduro or Venezuelan state firms.

It is a further sign that Venezuela is tapping inexperienced firms to stem massive declines in crude output as more established oil companies steer clear of the troubled country due to concerns about U.S. sanctions and overall dysfunction.

Erepla said the agreement will “revitalize oil production” at the Tia Juana Lago and Rosa Mediano fields in the western Lake Maracaibo region and in the Ayacucho 5 bloc, in the eastern heavy-oil Orinoco Belt.

The company added that the deal gives it “enhanced managerial participation” in the projects and will be responsible for procurement, a key difference from long-established joint ventures between PDVSA and oil majors like Chevron Corp (CVX.N), where PDVSA has full operational control.

Erepla said it would be “responsible for the entirety of the investment.” A spokesman declined to elaborate on how it would raise the funds.

Neither PDVSA nor the Oil Ministry responded to requests for comment.

The Erepla spokesman said Sargeant, who has served as finance chairman of the Florida Republican Party and runs asphalt trading and shipping firm Global Oil Management Group, owns a stake in Erepla, but declined to reveal the percentage.

The deal is the first new partnership between PDVSA and a private company since Oil Minister Manuel Quevedo in August announced a set of “joint service agreements” with 14 little-known companies that did not appear to have experience operating oilfields and PDVSA.

Those contracts were similar to ones rolled back under late socialist leader Hugo Chavez, who expanded the state’s role in the OPEC country’s energy industry.

Output has continued to stagnate since the deals were signed, dropping to 1.46 million barrels per day in November from more than 2 million at the end of last year, according to OPEC figures, in a sign of the company’s struggles under military rule.

SANCTIONS, UNPAID INVOICES

Washington has levied several rounds of sanctions on Venezuela that block U.S. citizens from providing financing to Maduro’s government without placing explicit restrictions on commerce or investment.

But because PDVSA is perennially cash-strapped, agreements to boost production usually involve partner companies putting up significant amounts of upfront funding that could run afoul of sanctions.

Erepla said it had applied to the U.S. Treasury Department’s Office of Foreign Assets Control, which implements sanctions, for a “Specific License affirming the agreement.”

The Treasury Department generally does not comment on individual license applications or the timeline for reviewing them, a Treasury spokesperson said.

The Erepla spokesman said the firm’s “ownership includes serious and significant oilfield production capabilities as well as heavy oil refining ability.” Erepla said its minority owner is “an international oil company” that produces over 70,000 barrels per day “in a terrain similar to the Venezuelan fields,” but the spokesman declined to name the owner.

Sargeant maintained business ties to PDVSA in the early 2000s through a company that he partly owned called Trigeant, whose Corpus Christi, Texas-based refinery processed Venezuelan crude into asphalt, according to court records.

PDVSA won arbitration claims against Trigeant in 2006 and 2008 totaling $52 million for unpaid crude cargoes, and received a $17 million payment, according to court records.

Before having paid the full amount, Trigeant sold the refinery to a third party.

PDVSA won a court order blocking the sale, arguing that it was a fraudulent transfer meant to prevent it from collecting on the arbitration judgment because Sargeant had a controlling stake in the buyer. Trigeant later declared bankruptcy, and an attorney for Sargeant said he “ultimately made PDVSA whole.”

“Ultimately, Harry III resolved PDVSA’s claims to their satisfaction,” Chris Kise, a partner at Foley & Lardner, said by phone.

Maduro, who has deepened Venezuela’s relationships with U.S. adversaries like Russia and China, often accuses the United States of plotting to overthrow him and steal the OPEC nation’s oil wealth.

The deal has been criticized by hardline Chavez supporters, who say it cedes too much control to a foreign company.

“This is the worst giveaway in the history of our country’s oil industry,” former Oil Minister Rafael Ramirez wrote in a blog post on Sunday. “Maduro and Quevedo will have to be held to account for giving away assets belonging to all Venezuelans and ceding our sovereignty over managing our oil.”